Friday, December 9, 2011

LITTLE ROCK — The Arkansas Supreme Court on Thursday affirmed a nearly $50 million verdict for farmers who say they lost money because a company’s genetically altered rice seeds contaminated the food supply and drove down crop prices.

Bayer, the German conglomerate whose Bayer CropScience subsidiary produced the seeds, had argued that Arkansas tort laws set a limit on punitive damages and that courts should set aside jury awards that “shock the conscience.” In the April 2010 verdict, a Lonoke County jury awarded $42 million in punitive damages and $5.9 million in actual damages.

The company said a lower court erred last year in ruling that a cap on punitive damages is unconstitutional.

But in its 24-page opinion released Thursday, the state Supreme Court agreed with the lower court that the cap on punitive damages was unconstitutional. Associate Justice Courtney Hudson Goodson wrote that the cap “limits the amount of recovery outside the employment relationship,” while the Arkansas constitution only allows limits on compensation paid by employers to employees.

The latest decision comes years after Bayer developed an experimental strain of rice called LibertyLink to withstand its Liberty herbicide. Federal regulators had not yet approved it for human consumption when trace amounts were found mixed with conventional rice seed in storage bins in Arkansas and Missouri.

No human health problems have been associated with the contamination, but that wasn’t known at the time.

The fear that the rice was unsafe, along with the notion that genetically altered rice was somehow impure, quashed sales in major markets. Rice futures plummeted by $150 million immediately after the contamination announcement. European nations quit accepting shipments of rice from the U.S. that hadn’t been extensively tested to show they weren’t contaminated. Japan banned all American rice.

Growers in Arkansas—where about half of the nation’s rice is produced—as well as California, Louisiana, Mississippi, Missouri and Texas sued Bayer, claiming rice prices fell so severely that they received much less for their crops.

Bayer argued that any damages were minimal and short-term.

“This case is only about economic losses,” Bayer’s attorneys argued in a court document filed in Arkansas this year. “Mixing conventional rice with less valuable (LibertyLink rice) did not constitute ‘physical’ damage to the rice (as seed or as crop), the land, the farming implements or anything else.”

Bayer CropScience announced in July that it would pay up to $750 million to settle claims, including those from farmers who say they had to plant different crops and made less money from them. The farmers in the Lonoke County suit cannot receive money from that $750 million pot.

The Lonoke County farmers argued that Bayer knew of the contamination as early as January 2006, before that year’s crops were sowed, and was thus not only negligent in its handling of LibertyLink rice but acted with malicious intent by not announcing the contamination as soon as it learned about it.

Lawyers for the farmers said their clients didn’t learn of the contamination until the USDA’s announcement in August 2006, when it was almost time to harvest that year’s crops. The company said it notified the government as soon as it discovered LibertyLink had shown up in commercial rice.

The lawsuit and settlement apply to long-grain rice, the kind used in pilaf or typically mixed with beans. They don’t affect farmers who planted medium-grain rice, which is often used in sushi, or short-grain rice, which is often used to make cereal.

Thursday’s decision calling the cap on punitive damages unconstitutional drew sharp criticism from the Arkansas State Chamber of Commerce, a pro-industry interest group, which said the ruling would allow judges and juries to punish businesses without limit.

“This will have a chilling effect on the business climate in Arkansas,” said Randy Zook, the president and CEO of the chamber and Associated Industries of Arkansas.

But Scott Powell, an Alabama lawyer who represented the Arkansas farmers in the case, said the decision marked a victory not only for his clients, but for people and businesses in Arkansas.

“It helps them in deterring bad conduct,” said Powell.

Bayer said it is studying the court’s opinion and considering its options.

“Bayer CropScience is disappointed with the decision of the Arkansas Supreme Court,” spokesman Greg Coffey said in a statement.